News

Yesterday, Genting Malaysia Bhd (GENM)’s indirectly wholly-owned subsidiary, Nedby Ltd entered into a conditional sale and purchase agreement with RWI International Investments Ltd to acquire the latter’s entire 100% stake in Genting Aldemey for GBP7.2m (c.RM48.1m) which has net assets of GBP2.34m and reported a net loss of GBP3.72m for FY14.

Genting Aldemey, which principal activity is to operate online gaming activities in the UK, has a full eGambling Licence valid from 05 March 2008 issued by the Alderney Gambling Control Commission and a Combined Remote Operating Licence dated 08 May 2015 issued by the Gambling Commission of the UK to manufacture, supply, install or adapt gambling software, to operate casino and act as a betting intermediary.

Completion of the deal shall take place once the authority confirms that both abovementioned licences will continue to be effective following the change of corporate control of Genting Alderney as a result of this acquisition.

Comments

This is a related party transaction as the seller RWI is 50:50 indirectly owned by parent company, GENTING (OP; TP: RM8.36) and chairman Tan Sri Lim Kok Thay. RWI acquired Genting Alderney from Genting Singapore Plc (NOT RATED) in Sep 2012 for GBP3.0m. Subsequently, RWI had subscribed for 9.3m redeemable preference shares at Genting Alderney for GBP9.3m.

Although this is a related party transaction, we believe it is fair to park Genting Alderney under GENM which houses the group’s UK casino operations under Genting UK, since Genting Alderney is involved in online gaming activities in UK.

The purchase price of GBP7.2m, which is based on indicative DCF valuation range of GBP2.9m and GBP11.5m, will not have any material impact on GENM’s balance sheet given its net cash position of RM1.07b as at end-Jun 2015. Meanwhile, we do not expect this acquisition to have any significant earnings impact to earnings.

Outlook

The RM5b 10-year refurbishment program will be a structural change to its home turf operations and act as an earnings catalyst from 2016 onwards. The theme park is on track to be ready by end-2016/early2017 with no cost overrun at this juncture.

On the other hand, the yield management initiative should help to improve earnings while the RWNYC numbers should be sustainable. RWB’s new 300-room luxury hotel is expected to reduce its operating loss and breakeven in 2H15. However, the UK operations could continue to see tougher times due to its VIP-centric nature. Changes To

Forecasts

No changes to FY15-FY17 estimates

Rating

Maintain OUTPERFORM

Valuation

Price target maintains at RM4.41/SoP share.

Risks to Our Call

Poorer luck factor.

Source: Kenanga Research - 2 Oct 2015